updated 07:27 pm EST, Mon February 10, 2014

Apple had wanted monitor suspended while appeal goes forward

Apple on Monday lost its bid to halt or replace court-appointed antitrust monitor Michael Bromwich, a friend of trial Judge Denise Cote which the company had strenuously objected to for a variety of reasons. The court, while rejecting Apple's claim that Bromwich's "overreaching" and obnoxious behavior was causing the company "irreparable harm," did set stronger limits on Bromwich's activities -- curtailing most of what Apple had objected to.

During oral arguments before the appeals court last week, the Department of Justice offered to rein in Bromwich's duties to a more limited scope of simply assessing Apple's antitrust compliance policies, and ensuring that the company communicates those policies to its employees and executives effectively. Bromwich would no longer be permitted to investigate any potential antitrust activity, or interview employees beyond communications required in the course of his duties. Should Bromwich discover or suspect any evidence of violations with the court's order, he must report it to Judge Cote, not investigate it.

The compromise by the DOJ addresses the majority of Apple's issues with the monitor, and thus the court decided to go with it rather than place the monitor on hold entirely until Apple's appeal is complete, as the iPhone maker had wanted. The company has objected both to Bromwich specifically and to the idea of an external compliance monitor entirely, saying that a monitor amounts to an unjust punishment, is unnecessary in that Apple's revised antitrust policies will also be reviewed by the court and the DOJ, and that the imposition of an external monitor is a very unusual penalty to impose on a company with no record of antitrust violations.

The ruling will effectively scale back both Bromwich's power and ability to bill large amounts of "work," and sets aside almost all of his quasi-judicial investigatory duties originally ordered by Judge Cote. While the court's decision is a loss for Apple's position, it is also a rebuke of Bromwich's conduct, and some parts of Judge Cote's original order -- which went so far as to allow Bromwich to not only investigate any business decisions related to Apple's e-book business, but allow secret, off-the-record ex parte reports from Bromwich, despite the fact that Cote is still ruling on matters related to the original DOJ case, and is in charge of the case brought by 33 state attorneys general and class-action lawyers. She later rescinded this portion of her order.

Judge Cote, in her initial ruling on Apple's request, ignored Apple's numerous other objections to Bromwich, which ranged from questioning Bromwich's basic competence to his "excessive" fee of $1,250 per hour (and an assistant with actual antitrust experience, who required $1,125 per hour, along with a 15 percent "administrative" surcharge) to his open violations of Cote's guidelines. The Appeals Court ruling does not directly address the issue of fees, referring the matter to the DOJ (which had previously offered "adjustments" on Bromwich's charges).

The DOJ issued a brief statement saying that today's ruling by the Second Court of Appeals "makes abundantly clear that Apple must now cooperate with the court-appointed monitor." Apple had won a temporary stay of Bromwich's duties while the court debated Apple's emergency appeal.

The company is still planning to appeal both the outcome of the first DOJ trial entirely, as well as Judge Cote's specific penalties and rulings, particularly the imposition of a monitor in the first place. Today's ruling, in which the court and government both felt obligated to rein in Bromwich and narrow the monitor's focus, is unlikely to hurt Apple's chances in later appeals, which are largely based on claims of judicial errors and bias by Cote.

Apple originally appealed to Judge Cote to reconsider her monitor ruling, but she rejected the appeal last month, saying (without any explanation) that Apple's objections to Bromwich "only underscored the necessity of an external monitor." The court specifically addressed Apple's objections to overreach by Bromwich, saying that it accepted the government's offer of stricter guidelines, and that "the monitor will conduct his activities within the bounds of [the original] order."

Judge Cote will preside over a separate trial that will determine how much in damages Apple will have to pay 33 states and various consumer's groups based on the original antitrust verdict. This time, however, Apple will argue its case before a jury rather than the judge directly.

The states are seeking some $240 million in actual damages, but claiming triple damages as a punitive measure, totalling $840 million. It will also appeal today's ruling and the verdict of the original bench trial itself to the Second Circuit Court, the same panel of judges that issued today's ruling.